Notes 2009 2008

CURRENT ASSETS

Cash 4 36,472,249 P 136,974,818 P

Loans and other receivables - net 5 1,153,508,012 962,102,745

Prepaid expenses and other current assets 824,537 783,327

Total Current Assets 1,190,804,798 1,099,860,890

NON-CURRENT ASSETS

Loans and other receivables - net 5 422,284,478 364,942,506

Available-for-sale financial assets 6 21,027,179 20,332,933

Property and equipment - net 7 4,909,144 6,109,376

Investment property - net 8 8,000,001 8,526,024

Deferred charges 9 - 1,589,763

Total Non-current Assets 456,220,802 401,500,602

TOTAL ASSETS 1,647,025,600 P 1,501,361,492 P

CURRENT LIABILITIES

Interest-bearing loans 12 15,000,000 P -

Accounts payable and accrued expenses 10 344,348,788 412,754,398

Deposit liabilities 11 549,075,968 366,477,680

Unclaimed dividends 13 26,539,448 94,678,711

Deferred interest on loan 5 58,765,464 42,103,724

Cooperative education and training fund 14 41,488,609 38,635,149

Reserve for contingency fund - comprehensive benefit plan 15 17,656,165 10,068,530

Total Liabilities 1,052,874,442 964,718,192

MEMBERS' EQUITY

Equity contribution 512,443,460 463,478,383

Revaluation reserve 6 502,388 243,720 )(

Reserves 18

General equity reserve fund 74,033,505 67,605,758

Social and community development fund 4,369,258 3,723,055

Cooperative education and training fund 2,802,547 2,079,824

81,205,310 73,408,637

Total Members' Equity 594,151,158 536,643,300

TOTAL LIABILITIES AND MEMBERS' EQUITY 1,647,025,600 P 1,501,361,492 P

See Notes to Financial Statements.

A S S E T S

LIABILITIES AND MEMBERS' EQUITY

PLDT EMPLOYEES' CREDIT COOPERATIVE, INC.

STATEMENTS OF ASSETS, LIABILITIES AND MEMBERS' EQUITY

DECEMBER 31, 2009 AND 2008

(Amounts in Philippine Pesos)

P -

Notes 2009 2008

REVENUES

Interest on loans 5 161,218,895 P 181,599,363 P

Service fees 38,889,165 46,272,089

Other income 13,112,287 12,621,048

213,220,347 240,492,500

EXPENSES

Interest on savings deposit 11 29,333,670 23,076,728

Salaries and wages 15,940,100 15,186,518

Employee benefits 10 8,802,000 10,712,242

Officers' benefits 17 6,711,000 4,670,600

Impairment loss on loans 5 5,829,661 3,764,310

Allowances and per diem 16 5,396,000 5,396,000

Members' benefits 5,289,500 2,503,000

Convention 2,960,357 5,260,449

Depreciation and amortization 7, 8 2,367,328 4,682,809

Election 2,239,520 1,050,029

Operational maintenance 1,588,424 1,458,242

Professional fees 1,355,696 1,041,400

Light and water 1,162,506 1,130,212

Christmas 913,721 813,249

Postage, telephone and telegram 876,824 943,626

Computer supplies and maintenance 664,540 541,252

Stationery, supplies and printing 515,759 385,279

SSS contribution 508,500 523,648

Meeting and caucus 462,018 304,030

Computer application maintenance 379,676 299,105

Repairs and maintenance 359,013 207,650

Impairment loss on investment property 8 352,396 1,318,687

Legal fees 294,021 423,121

Representation 240,708 244,516

Insurance 57,612 50,193

Transportation and gasoline 50,824 97,669

Pag-ibig contribution 38,400 40,300

Dues and subscription 17,040 23,715

Loss on disposal of property and equipment 7 - 1,126,185

Registration - 13,891

Others 643,283 320,342

95,350,097 87,608,997

INTEREST AND FINANCING FEES 11, 12 32,880,642 37,964,117

128,230,739 125,573,114

NET SAVINGS - carried forward 84,989,608 114,919,386

(Amounts in Philippine Pesos)

PLDT EMPLOYEES' CREDIT COOPERATIVE, INC.

STATEMENTS OF COMPREHENSIVE INCOME AND DISTRIBUTION OF NET SAVINGS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

P P

Note 2009 2008

NET SAVINGS - brought forward 84,989,608 P 114,919,386 P

OTHER COMPREHENSIVE

INCOME (LOSS)

Fair value gain (loss) on available-for-sale

financial assets 694,246 1,032,302 )(

TOTAL COMPREHENSIVE INCOME 85,683,854 P 113,887,084 P

DISTRIBUTION OF NET SAVINGS 18

General equity reserve fund 8,285,740 P 11,251,446 P

Social community and development fund 2,132,203 2,404,925

Cooperative education and training fund 5,965,733 8,101,041

Interest on share capital and patronage refund 68,605,932 93,161,974

84,989,608 P 114,919,386 P

See Notes to Financial Statements.

- 2 -

Social and Cooperative Interest on Share

EQUITY REVALUATION General Equity Community Education and Capital and

Notes CONTRIBUTION RESERVES Reserve Fund Development Fund Training Fund Patronage Refund Combined TOTAL

Balance at January 1, 2009 463,478,383 P 243,720 )( P 67,605,758 P 3,723,055 P 2,079,824 P - 73,408,637 P 536,643,300 P

Additional members' contribution 68,681,333 - - - - - - 68,681,333

Members' withdrawal 19,716,256 )( - - - - - - 19,716,256 )(

Total comprehensive income for the year

and allocation of net savings 6, 18 - 746,108 8,285,740 2,132,203 5,965,733 68,605,932 84,989,608 85,735,716

Disbursements 14 - - 1,857,993 )( 1,486,000 )( 2,260,143 )( - 5,604,136 )( 5,604,136 )( Transfer to liabilities - - - - 2,982,867 )( 68,605,932 )( 71,588,799 )( 71,588,799 )(

Balance at December 31, 2009 512,443,460 P 502,388 P 74,033,505 P 4,369,258 P 2,802,547 P - 81,205,310 P 594,151,158 P

Balance at January 1, 2008 430,320,585 P 788,582 P 67,824,569 P 2,893,687 P 419,895 P - 71,138,151 P 502,247,318 P

Additional members' contribution 68,081,647 - - - - - - 68,081,647

Members' withdrawal 34,923,849 )( - - - - - - 34,923,849 )(

Total comprehensive income for the year

and allocation of net savings 6, 18 - 1,032,302 )( 11,251,446 2,404,925 8,101,041 93,161,974 114,919,386 113,887,084

Disbursements 14 - - 11,470,257 )( 1,575,557 )( 2,390,591 )( - 15,436,405 )( 15,436,405 )( Transfer to liabilities - - - - 4,050,521 )( 93,161,974 )( 97,212,495 )( 97,212,495 )(

Balance at December 31, 2008 463,478,383 P 243,720 )( P 67,605,758 P 3,723,055 P 2,079,824 P - 73,408,637 P 536,643,300 P

PLDT EMPLOYEES' CREDIT COOPERATIVE, INC.

STATEMENTS OF CHANGES IN MEMBERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Philippine Pesos)

R E S E R V E S

See Notes to Financial Statements.

P

P

P

P

Notes 2009 2008

CASH FLOWS FROM OPERATING ACTIVITIES

Net savings 84,989,608 P 114,919,386 P

Adjustments for:

Interest income 161,783,456 )( 181,599,363 )(

Interest expense 62,013,040 60,925,917

Impairment losses on loans and investment property 5, 8 6,182,057 5,082,997

Depreciation and amortization 7, 8 2,367,329 4,682,809

Loss on disposal of property and equipment 7 - 1,126,185

Operating income (loss) before working capital changes 6,231,422 )( 5,137,931

Increase in loans and other receivable 254,576,901 )( 179,992,788 )(

Decrease (increase) in prepaid expenses 41,211 )( 1,163,825

Decrease in deferred charges 1,589,763 1,589,763

Decrease accounts payable and accrued expenses 68,353,748 )( 29,918,308 )(

Increase in deposit liabilities 182,598,288 23,713,421

Decrease in unclaimed dividends 68,605,931 )( 8,657,984 )(

Decrease in deferred interest on loans 16,661,740 9,754,897

Decrease in cooperative education and training fund 129,407 )( 658,350 )(

Increase (decrease) in reserve for

contingency fund - comprehensive benefit plan 7,587,635 14,295 )(

Cash used in operations 189,501,194 )( 177,881,888 )(

Interest received 161,783,456 192,508,741

Interest paid 62,013,040 )( 60,925,917 )(

Net Cash Used in Operating Activities 89,730,778 )( 46,299,064 )(

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of property and equipment 7 993,469 )( 2,752,200 )(

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid 68,139,263 )( -

Net contribution from members 48,965,077 33,157,798

Availment of interest-bearing loans 12 15,000,000 -

Disbursement from reserves 5,604,136 )( 15,436,405 )(

Net Cash From (Used in) Financing Activities 9,778,322 )( 17,721,393

NET DECREASE IN CASH 100,502,569 )( 31,329,871 )(

CASH AT BEGINNING OF YEAR 136,974,818 168,304,689

CASH AT END OF YEAR 36,472,249 P 136,974,818 P

See Notes to Financial Statements.

PLDT EMPLOYEES' CREDIT COOPERATIVE, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Philippine Pesos)

PLDT EMPLOYEES’ CREDIT COOPERATIVE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

(Amounts in Philippine Pesos)

1. COOPERATIVE MATTERS

1.1 Cooperative Information

PLDT Employees’ Credit Cooperative, Inc. (the Cooperative or PECCI) was originally

named Free Telephone Workers’ Cooperative Credit Union (FTWCCU). FTWCCU was

authorized as a credit cooperative by the Cooperative Administration Office (CAO) under

the Central Bank on December 5, 1958. It was renamed as PLDT Employees’ Credit

Cooperative Association (PECCA). The 1977 general assembly again renamed PECCA as

PLDT Employees’ Credit Cooperative, Inc. and was re-registered with the CAO under

Certificate No. 0096 on May 16, 1977. Subsequently, the Cooperative was re-registered with

the current Cooperative Development Authority (CDA) under Confirmation No. MLA-C-

1063 dated September 30, 1991. The Cooperative is presently engaged in encouraging thrift

and savings mobilization among the members for capital formation, creating funds in order

to grant loans for productive and providential purposes to its members and promoting the

cooperative as a way of life for improving the social and economic well-being of its

members.

In accordance with Republic Act (R.A.) No. 6938, otherwise known as “the Cooperative

Code of the Philippines”, which was amended by R.A. 9520, Philippine Cooperative Code

of 2008, cooperatives are exempted from the payment of all national, city, provincial,

municipal or barangay taxes of whatever name and nature, including exemption from

custom duties, advance sales of compensating taxes on its importation of machinery,

equipment and spare parts which are not available locally as certified by the Department of

Trade and Industry. Cooperatives shall enjoy tax exemptions from government taxes or fees

imposed under internal revenue laws provided they do not transact with non-members or

the general public. Cooperatives, if transacting business with non-members or the general

public, may be exempted from tax if their accumulated reserves and undivided net savings

does not exceed P10,000,000, or up to 10 years from the date of registration if their

accumulated reserves already exceeds P10,000,000.

The Cooperative limits its services to its members only. Accordingly, the Cooperative is

exempt from taxes, including income tax, under the Code. The membership is institutional

and limited to Philippine Long Distance Telephone Co. (PLDT) and its subsidiaries’

(collectively herein referred to as “PLDT Companies”) employees, as well as resigned

employees of PLDT Companies, if they opt to continue their membership, and their

dependents consisting of the legitimate spouse under the age of 50 and legitimate children

and relatives up to the 3rd degree of consanguinity under the age of 21.

The Cooperative’s registered office, which is also its principal place of business, is located at

the 4th Floor, Universal-Re Building, Paseo de Roxas Avenue, Makati City.

1.2 Amendment of the Cooperative Code of the Philippines

On February 17, 2009, the President of the Philippines signed into law R.A. No. 9520,

otherwise known as the Philippine Cooperative Code of 2008 (the Code), to amend the

Cooperative Code of the Philippines. On February 5, 2010, the Department of Finance

issued the Joint Rules and Regulations implementing Articles 60, 61 and 144 of the

R.A No. 9520 in relation to R.A. No. 8424 or the National Internal Revenue Code, as

amended, (Joint Rules and Regulations). Likewise, on February 11, 2010, the Bureau of

Internal Revenue issued Revenue Memorandum Circular No. 12-2010 circularizing the full

text of the Joint Rules and Regulations. Management currently assessed that the Code and

the Joint Rules and Regulations has no significant impact on the financial statements. As of

the date of approval of the financial statements, the Cooperative has already re-registered

with CDA, as required under the Code, and currently addressing the requirements and

procedures of the Joint Rules and Regulations.

1.3 Approval of the Financial Statements

The financial statements of the Cooperative for the year ended December 31, 2009

(including the comparatives for the year ended December 31, 2008) were authorized for issue

by the Board of Directors (BOD) on March 23, 2010.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies that have been used in the preparation of these financial

statements are summarized below. These policies have been consistently applied to all the

years presented, unless otherwise stated.

2.1 Basis of Preparation of Financial Statements

(a) Statement of Compliance with Philippine Financial Reporting Standards (PFRS)

The financial statements of the Cooperative have been prepared in accordance with

PFRS, except for revenue recognition on interest income on loans, impairment testing

on loans and receivables, and recognition of liabilities and expenses relating to

retirement benefits and comprehensive benefit program. PFRS are adopted by the

Financial Reporting Standards Council (FRSC) from the pronouncements issued by the

International Accounting Standards Board.

These financial statements have been prepared on the historical cost basis, except for the

revaluation of certain financial assets. The measurement bases are more fully described

in the accounting policies that follow.

(b) Presentation of Financial Statements

These financial statements are prepared in accordance with Philippine Accounting

Standard (PAS) 1 (Revised 2007), Presentation of Financial Statements. The

Cooperative presents all items of income and expenses in a single statement of

comprehensive income. Two comparative periods are presented for the statement of

financial position when the Cooperative applies an accounting policy restrospectively,

makes a retrospective restatement of items in its financial statements, or reclassifies

items in the financial statements.

(c) Functional and Presentation Currency

These financial statements are presented in Philippine pesos, the Cooperative’s

functional and presentation currency, and all values represent absolute amounts except

when otherwise indicated.

Items included in the financial statements of the Cooperative are measured using the

currency of the primary economic environment in which the entity operates (the

functional currency).

2.2 Adoption of New Interpretations, Revisions and Amendments to PFRS

(a) Effective in 2009 that are Relevant to the Cooperative

In 2009, the Cooperative adopted (resulting in changes in certain policies of the

Cooperative’s affected policies) the following new revisions and amendments to PFRS

that are relevant to and effective for the Cooperative’s financial statements for the annual

period beginning on or after January 1, 2009:

PAS 1 (Revised 2007) : Presentation of Financial Statements

PFRS 7 (Amendment) : Financial Instrument Disclosures

Various Standards : 2008 Annual Improvements to PFRS

Discussed below are the effects on the financial statements of the new accounting

interpretation and amended standards.

a. PAS 1 (Revised 2007), which is effective from January 1, 2009, requires an entity to

present all items of income and expense recognized in the period in a single statement

of comprehensive income and distribution of net savings or in two statements:

a separate statement of income and a statement of comprehensive income and

distribution of net savings. Income and expense recognized in profit or loss is

presented in the statement of income in the same way as the previous version of

PAS 1. The statement of comprehensive income and distribution of net savings

includes the profit or loss for the period and each component of income and expense

recognized outside of profit or loss or the “non-owner changes in equity,” which are

no longer allowed to be presented in the statements of changes in equity, classified by

nature (e.g., gains or losses on available-for-sale assets or translation differences related

to foreign operations). A statement showing an entity’s financial position at the

beginning of the previous period is also required when the entity retrospectively

applies an accounting policy or makes a retrospective restatement, or when it

reclassifies items in its financial statements.

The Cooperative’s adoption of PAS 1 (Revised 2007) did not result in any material

adjustments in its financial statements as the change in accounting policy only affects

presentation aspects. The Cooperative elected to present a single statement of

comprehensive income and distribution of net savings.

b. PFRS 7 (Amendment), Financial Statements Disclosures. The amendments require

additional disclosures for financial instruments that are measured at fair value in the

statement of financial position. These fair value measurements are categorized into a

three-level fair value hierarchy, which reflects the extent to which they are based on

observable market data. A separate quantitative maturity analysis must be presented

for derivative financial liabilities that shows the remaining contractual maturities,

where these are essential for an understanding of the timing of cash flows. The

change in accounting policy only results in additional disclosures (see Note 21.2).

c. 2008 Annual Improvements to PFRS. The FRSC has adopted the Improvements to

International Financial Reporting Standards 2008 which became effective in the

Philippines in annual periods beginning on or after January 1, 2009. Among those

improvements, the following are the amendments relevant to the Cooperative:

PAS 36 (Amendment), Impairment of Assets. Where fair value less cost to sell is

calculated on the basis of discounted cash flows, disclosures equivalent to those

for value-in-use calculation should be made. Appropriate disclosures were made in

the Cooperative’s 2009 financial statements.

PAS 38 (Amendment), Intangible Assets. The amendment clarifies when to

recognize a prepayment asset, including advertising or promotional expenditures.

In the case of supply of goods, the entity recognizes such expenditure as an

expense when it has a right to access the goods. Also, prepayment may only be

recognized in the event that payment has been made in advance of obtaining right

access to goods or receipt of services. The Cooperative determined that adoption

of this amendment had no material effect on its 2009 financial statements.

PAS 40 (Amendment), Investment Property. PAS 40 is amended to include

property under construction or development for future use as investment

property in its definition of investment property. This results in such property

being within the scope of PAS 40; previously, it was within the scope of

PAS 16. Also, if an entity’s policy is to measure investment property at fair

value, but during construction or development of an investment property the

entity is unable to reliably measure its fair value, then the entity would be

permitted to measure the investment property at cost until construction or

development is complete. At such time, the entity would be able to measure the

investment property at fair value. The adoption had no material effect on its

2009 financial statements as the Cooperative has no property under construction

or development for future use as investment property.

(b) Effective Subsequent to 2009

There are new PFRS, revisions, amendments, annual improvements and interpretations

to existing standards that are effective for periods subsequent to 2009. Among those,

management has initially determined the 2009 Annual Improvements to PFRS to be

relevant to its financial statements, which the Cooperative will apply in accordance with

their transitional provisions. The FRSC has adopted the Improvements to International

Financial Reporting Standards 2009. Most of these amendments became effective in

annual periods beginning on or after July 1, 2009 or January 1, 2010. Among those

improvements, only the following amendments were identified to be relevant to the

Cooperative’s financial statements:

•

•

•

(i) PAS 1 (Amendment), Presentation of Financial Statements (effective from

January 1, 2010). The amendment clarifies the current and non-current classification

of a liability that can, at the option of the counterparty, be settled by the issue of the

entity’s equity instruments. The Cooperative will apply the amendment in its 2010

financial statements but expects to have no material impact in the Cooperative’s

financial statements.

(ii) PAS 7 (Amendment), Statement of Cash Flows (effective from January 1, 2010).

PAS 7 amendment states explicitly that only an expenditure that results in a

recognized asset can be classified as a cash flow from investing activities. The

amendment will not have a material impact on the financial statements since only

recognized assets are classified by the Cooperative as cash flow from investing

activities.

(iii) PAS 17 (Amendment), Leases (effective from January 1, 2010). The amendment

clarifies that when a lease includes both land and building elements, an entity

assesses the classification of each element as finance or an operating lease separately

in accordance with the general guidance on lease classification set out in PAS 17.

Management has initially determined that this will not have material impact on the

financial statements since the Cooperative does not enter into a lease agreement that

includes both land and building.

(iv) PAS 18 (Amendment), Revenue (effective from January 1, 2010). The amendment

provides guidance on determining whether an entity is acting as a principal or as an

agent. Management will apply this amendment prospectively in its 2010 financial

statements.

2.3 Financial Assets

Financial assets, which are recognized when the Cooperative becomes a party to the

contractual terms of the financial instrument, include cash and other financial instruments.

Financial assets are classified into the following categories: financial assets at fair value

through profit or loss, loans and receivables, held-to-maturity investments and available-for-

sale financial assets. Financial assets are assigned to the different categories by management

on initial recognition, depending on the purpose for which the investments were acquired.

The designation of financial assets is re-evaluated at every reporting date at which date a

choice of classification or accounting treatment is available, subject to compliance with

specific provisions of applicable accounting standards.

Regular purchases and sales of financial assets are recognized on their trade date. All

financial assets that are not classified as at fair value through profit or loss are initially

recognized at fair value plus any directly attributable transaction costs. Financial assets

carried at fair value through profit or loss are initially recognized at fair value and

transaction costs are recognized in profit or loss.

The categories of financial instruments relevant to the Cooperative are more fully described

below.

(a) Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable

payments that are not quoted in an active market. They arise when the Cooperative

provides money directly to a member with no intention of trading the receivables. They

are included in current assets, except for maturities greater than 12 months after the

reporting date which are classified as non-current assets.

Loans and receivables are subsequently measured at amortized cost using the effective

interest method, less any impairment losses. Any change in their value is recognized in

profit or loss. However, the Cooperative pre-collected interest income from loans and

recognizes as revenue an amount equivalent to one year interest regardless of when the

interest income is earned.

Impairment loss is provided when there is objective evidence that the Cooperative will

not be able to collect all amounts due to it in accordance with the original terms of the

receivables. The amount of the impairment loss is determined as the difference between

the assets’ carrying amount and the present value of estimated cash flows.

The Cooperative’s financial assets categorized as loans and receivables are presented as

Cash and Loans and Other Receivables in the statement of assets, liabilities and

members’ equity. Cash includes cash on hand and cash in bank.

(b) Available-for-sale Financial Assets

This includes non-derivative financial assets that are either designated to this category or

do not qualify for inclusion in any of the other categories of financial assets. They are

included as non-current available-for-sale financial assets account in the statement of

assets, liabilities and members’ equity unless management intends to dispose of the

investment within 12 months from the reporting period date.

All available-for-sale financial assets are measured at fair value, unless otherwise disclosed,

with changes in value recognized in other comprehensive income and distribution of net

savings, net of any effects arising from income taxes. When the asset is disposed of or is

determined to be impaired the cumulative gain or loss recognized in other

comprehensive income is reclassified from revaluation reserve to profit or loss and

presented as a reclassification adjustment within other comprehensive income.

Reversal of impairment loss is recognized in other comprehensive income, except for

financial assets that are debt securities which are recognized in profit or loss only if

reversal can be objectively related to an event occurring after the impairment loss was

recognized.

All income and expenses, including impairment losses, relating to financial assets that are

recognized in profit or loss are presented as part of Interest and Financing Fees in the

statement of comprehensive income and distribution of net savings, except for

impairment of loans and receivables which is presented as Impairment Loss on Loans.

For investments that are actively traded in organized financial markets, fair value is

determined by reference to stock exchange-quoted market bid prices at the close of

business on each reporting date. For investments where there is no quoted market price,

fair value is determined by reference to the current market value of another instrument

which is substantially the same or is calculated based on the expected cash flows of the

underlying net asset base of the investment.

Non-compounding interest, dividend income and other cash flows resulting from

holding financial assets are recognized in profit or loss when earned, regardless of how

the related carrying amount of financial assets is measured.

Derecognition of financial assets occurs when the rights to receive cash flows from the

financial instruments expire or are transferred and substantially all of the risks and

rewards of ownership have been transferred.

2.4 Property and Equipment

Property and equipment is measured at cost less accumulated depreciation and amortization

and any impairment in value.

The cost of an asset comprises its purchase price and directly attributable costs of bringing

the asset to working condition for its intended use. Expenditures for additions, major

improvements and renewals are capitalized; expenditures for repairs and maintenance are

charged to expense as incurred. When assets are sold, retired or otherwise disposed of, their

cost and related accumulated depreciation, amortization and impairment losses are removed

from the accounts and any resulting gain or loss is reflected in income for the period.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets

as follows:

Condominium unit and improvements 10-30 years

Transportation equipment 5 years

Computers, office furniture and fixtures 3-5 years

Amortization of improvements is recognized over the estimated useful life of the

improvements of 10 years or the term of the lease, whichever is shorter.

An asset’s carrying amount is written down immediately to its recoverable amount if the

asset’s carrying amount is greater than its estimated recoverable amount (see Note 2.9).

The residual values and estimated useful lives of property and equipment are reviewed, and

adjusted if appropriate, at each reporting date.

An item of property and equipment is derecognized upon disposal or when no future

economic benefits are expected to arise from the continued use of the asset. Any gain or loss

arising on derecognition of the asset (calculated as the difference between the net disposal

proceeds and the carrying amount of the item) is included in profit or loss in the year the

item is derecognized.

2.5 Investment Property

Investment property is measured at acquisition cost. The cost of the asset comprises its

purchase price and directly attributable costs of bringing the asset to working condition for

its intended use. Investment property is stated at cost less accumulated depreciation (except

land which is stated at cost) and any impairment in value. Depreciation and amortization of

building and its improvements is computed using the straight-line method over the estimated

useful life of 50 years.

Investment property is derecognized upon disposal or when permanently withdrawn from

use and no future economic benefit is expected from its disposal. Any gain or loss on the

retirement or disposal of an investment property is recognized in the profit or loss in the

year of retirement or disposal.

2.6 Financial Liabilities

Financial liabilities, except for retirement benefit obligation, include accounts payable and

accrued expenses, deposit liabilities, interest-bearing loans, cooperative education and

training fund (CETF) and unclaimed dividends.

Financial liabilities are recognized when the Cooperative becomes a party to the contractual

agreements of the instrument. All interest-related charges are recognized as an expense in

profit or loss under the caption Interest and Financing Fees.

Accounts payable and other liabilities are recognized initially at their fair value and

subsequently measured at amortized cost less settlement payments.

Interest-bearing loans are recognized at proceeds received, net of direct issue costs. Finance

charges and direct issue costs, are charged to profit or loss.

Financial liabilities are derecognized from the statement of assets, liabilities and members’

equity only when the obligations are extinguished either through discharge, cancellation or

expiration.

2.7 Provisions

Provisions are recognized when present obligations will probably lead to an outflow of

economic resources and they can be estimated reliably even if the timing or amount of the

outflow may still be uncertain. A present obligation arises from the presence of a legal or

constructive commitment that has resulted from past events.

Provisions are measured at the estimated expenditure required to settle the present

obligation, based on the most reliable evidence available at the reporting date, including the

risks and uncertainties associated with the present obligation. Any reimbursement expected

to be received in the course of settlement of the present obligation is recognized, if virtually

certain as a separate asset, not exceeding the amount of the related provision. Where there

are a number of similar obligations, the likelihood that an outflow will be required in

settlement is determined by considering the class of obligations as a whole.

In addition, where time value of money is material, long-term provisions are discounted to

their present values using a pretax rate that reflects market assessments and the risks specific

to the obligation.

Provisions are reviewed at each reporting period date and adjusted to reflect the current best

estimate. In those cases where the possible outflow of economic resource as a result of

present obligations is considered improbable or remote, or the amount to be provided for

cannot be measured reliably, no liability is recognized in the financial statements.

Probable inflows of economic benefits that do not yet meet the recognition criteria of an

asset are considered contingent assets, hence, are not recognized in the financial statements.

2.8 Revenue and Expense Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow

to the Cooperative and the revenue can be reliably measured. The following specific

recognition criteria must also be met before revenue is recognized:

a) Interest income on loans – The Cooperative recognizes the revenue for the first twelve

months of the amortization on the year of grant and the unearned portion is fully

recognized the following year regardless of the date of grant or the term of the loan.

b) Service fees – Revenue for charges on the processing of loans is recognized as an outright

income upon release of loan. Service fees range from 1%-3% prior to July 2009 and a

fixed rate equivalent to 2% starting July 2009. The amount of service fees is computed

based on the gross amount of loan granted.

c) Investment income – Revenue is recognized through fair value gain and dividend income

which is recognized when the investors’ right to receive the payment is established.

d) Interest income from bank deposits – Revenue is recognized as the interest accrues.

Revenue is measured by reference to the fair value of consideration received or receivable by

the Cooperative for services provided.

Cost and expenses are recognized in profit or loss at the date they are incurred or upon

utilization of the service.

2.9 Impairment of Non-financial Assets

The Cooperative’s property and equipment and investment property are subject to

impairment testing. Individual assets or cash-generating units are tested for impairment

whenever events or changes in circumstances indicate that the carrying amount may not be

recoverable.

For purposes of assessing impairment, assets are grouped at the lowest levels for which there

are separately identifiable cash flows (cash-generating units). As a result, some assets are

tested individually for impairment and some are tested at cash-generating unit level.

An impairment loss is recognized for the amount by which the asset or cash-generating

unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the

higher of fair value, reflecting market conditions less costs to sell, and value in use, based on

an internal evaluation of discounted cash flow. Impairment loss is charged pro-rata to the

other assets in the cash-generating unit.

All assets are subsequently reassessed for indications that an impairment loss previously

recognized may no longer exist and the carrying amount of the asset is adjusted to the

recoverable amount resulting in the reversal of the impairment loss.

2.10 Employee Benefits

(a) Retirement Benefit Obligations

The Cooperative does not have a formal benefit plan for its employees. However,

the Cooperative allocates a certain percentage of its net savings to be set aside for the

retirement of its employees.

b) Compensated Absences

Compensated absences are recognized for the number of paid leave days (including

holiday entitlement) remaining at the reporting date.

2.11 Members’ Equity

Equity contribution is the accumulation of the regular contribution of the members.

Revaluation reserve is the unrealized gains or losses resulting from the revaluation of the

Cooperative’s available-for-sale financial assets.

Reserves include all current and prior period results as disclosed in profit or loss.

3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The Cooperative’s financial statements prepared in accordance with PFRS require

management to make judgments and estimates that affect amounts reported in the financial

statements and related notes. Judgments and estimates are continually evaluated and are

based on historical experience and other factors, including expectations of future events that

are believed to be reasonable under circumstances. Actual results may ultimately differ from

these estimates.

3.1 Critical Management Judgments in Applying Accounting Policies

In the process of applying the Cooperative’s accounting policies, management has made the

following judgments, apart from those involving estimation, which have the most significant

effect on the amounts recognized in the financial statements:

(a) Impairment of Available-for-sale Financial Assets

The determination when an investment is other-than-temporarily impaired requires

significant judgment. In making this judgment, the Cooperative evaluates, among other

factors, the duration and extent to which the fair value of an investment is less than its

cost, and the financial health of and near-term business outlook for the investee,

including factors such as industry and sector performance, changes in technology and

operational and financing cash flows. Based on the recent evaluation of information and

circumstances affecting the Cooperative’s available-for-sale financial assets, management

concluded that the assets are not impaired as of December 31, 2009 and 2008. Future

changes in those information and circumstance might significantly affect the carrying

amount of the assets.

(b) Distinction Between Investment Properties and Owner-managed Properties

The Cooperative determines whether a property qualifies as investment property. In

making its judgment, the Cooperative considers whether the property generates cash

flows largely independent of the other assets held by an entity. Owner-occupied

properties generate cash flows that are attributable not only to the property but also to

other assets used in the production or supply process.

Some properties comprise a portion that is held to earn rental or for capital appreciation

and another portion that is held for use in the production and supply of goods and

services or for administrative purposes. If these portions can be sold separately (or leased

out separately under finance lease), the Cooperative accounts for the portions separately.

If the portion cannot be sold separately, the property is accounted for as investment

property only if an insignificant portion is held for use in the production or supply of

goods or services or for administrative purposes. Judgment is applied in determining

whether ancillary services are so significant that a property does not qualify as

investment property. The Cooperative considers each property separately in making its

judgment.

(c) Provisions and Contingencies

Judgment is exercised by management to distinguish between provisions and

contingencies. Policies on recognition and disclosure of provision are discussed in

Note 2.7. Contingencies are disclosed in Note 19.

3.2 Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of

estimation uncertainty at the reporting date, that have a significant risk of causing a material

adjustment to the carrying amounts of assets and liabilities within the next financial year.

(a) Useful Lives of Property and Equipment

The Cooperative estimates the useful lives of property and equipment based on the

period over which the assets are expected to be available for use. The estimated useful

lives over property and equipment are reviewed periodically and are updated if

expectations differ from previous estimates due to physical wear and tear, technical or

commercial obsolescence and legal or other limits on the use of the assets. The carrying

amounts of property and equipment are analyzed in Note 7. Actual results, however

may vary due to changes in estimates brought about by changes in factors mentioned

above. There is no change in the estimated useful lives of property and equipment

during the year.

(b) Allowance for Impairment of Loans and Other Receivables

Allowance is made for specific and groups of accounts, where objective evidence of

impairment exists. The Cooperative evaluates these accounts based on available facts

and circumstances, including, but not limited to, the length of the Cooperative’s

relationship with the members, the members’ current credit status, average age of

accounts, collection experience and historical loss experience.

The Cooperative has recognized P9.6 million allowance as of December 31, 2009

pertaining to the past due loans of resigned makers with co-makers. In 2008, the

allowance for impairment has a balance of P3.8 million (see Note 5).

(c) Valuation of Financial Assets Other than Loans and Other Receivables

The Cooperative carries its available-for-sale financial assets at fair value, which require

the extensive use of accounting estimates and judgment. In cases when active market

quotes are not available, fair value is determined by reference to the current market

value of another instrument which is substantially the same or is calculated based on

the expected cash flows of the underlying net base of the instrument. The amount of

changes in fair value would differ if the Cooperative utilized different valuation

methods and assumptions. Any change in fair value of these financial assets and

liabilities would affect profit and loss and other comprehensive income.

There are no impairment losses provided for the Cooperative’s available-for-sale

financial assets in 2009 and 2008. Fair value gain of P0.75 million in 2009 and fair value

loss of P1.03 million in 2008 on available-for-sale financial assets were reported in the

statement of comprehensive income and distribution of net savings (see Note 6).

(d) Impairment of Non-financial Assets

The Cooperative’s policy on estimating the impairment of non-financial assets is

discussed in Note 2.9. Though management believes that the assumptions used in the

estimation of fair values reflected in the financial statements are appropriate and

reasonable, significant changes in these assumptions may materially affect the

assessment of recoverable values and any resulting impairment loss could have a

material adverse effect on the results of operations.

The Cooperative recorded impairment loss on investment property amounting to

P0.35 million and P1.32 million on its investment property in 2009 and 2008,

respectively (see Note 8). There are no impairment losses provided on the

Cooperative’s property and equipment.

(e) Retirement and Other Benefits

The Cooperative sets aside a certain percentage of its net savings for the retirement

benefits of its employees. Should the Cooperative comply with PFRS, the

determination of the Cooperative’s obligation and cost of pension and other retirement

benefits is dependent on the selection of certain assumptions used by actuaries in

calculating such amounts.

The retirement benefit obligation amounted to P32.2 million and P34.3 million as of

December 31, 2009 and 2008, respectively (see Note 10.2).

4. CASH

Cash include the following components as of December 31:

2009 2008

Cash in banks P 34,390,432 P 134,987,490

Petty cash and revolving fund 1,850,000 1,850,000

Cash on hand 231,817 137,328

P 36,472,249 P 136,974,818

Cash accounts with the banks generally earn interest at rates based on daily bank deposit

rates.

5. LOANS AND OTHER RECEIVABLES

The balance of this account is composed of the following:

2009 2008

Loans:

Core loans P1,259,572,341 P 1,053,734,118

Pangkabuhayan loans 140,058,135 120,731,043

Mini-loans 55,943,877 65,901,235

Inflationary loans 29,474,803 35,156,888

Car equity loan 7,269,817 9,952,545

Housing equity loan 265,805 265,805

1,492,584,778 1,285,741,634

Allowance for impairment ( 9,593,971 ) ( 3,764,310)

1,482,990,807 1,281,977,324

Other receivables:

PLDT companies 56,884,920 16,312,947

Receivable from co-makers 18,364,914 15,078,855

Others 17,551,849 13,676,125

92,801,683 45,067,927

P1,575,792,490 P1,327,045,251

Loans and other receivables are further classified into the following:

2009 2008

Current P1,153,508,012 P 962,102,745

Non-current - net 422,284,478 364,942,506

P 1,575,792,490 P 1,327,045,251

Interest income charged to the borrowers are deducted upon release of loans and recognized

as income an amount equivalent to one year interest regardless of when the interest income

is earned. Total amount of unearned interest income amounted to P58.77 million and

P42.10 million as of December 31, 2009 and 2008, respectively, and is shown as Deferred

Interest on Loans in the statements of assets, liabilities and members’ equity.

Loans and other receivables with carrying value of P23,174,713 are used as collaterals for the

interest-bearing loans (see Note 12).

Changes in the allowance for impairment losses on loans are summarized below:

2009 2008

Balance at beginning of year P 3,764,310 P -

Provisions for impairment 5,829,661 3,764,310

Balance at end of year P 9,593,971 P 3,764,310

In October 2005, the Cooperative, PLDT Employees’ Multi-Purpose Cooperative

(Telescoop), another cooperative for PLDT companies’ employees, and PLDT companies

entered into an agreement that all amounts due from members that are deferred in the

combined amount of P50 thousand and above and with an outstanding account of

P300 thousand and above should be consolidated on voluntary basis. The accounts

consolidated should then be spread over a maximum of four years depending on the

members’ capacity to pay. It was also agreed that those included in the list will no longer

be given new loans; however, those who opted for consolidation shall be allowed a

maximum of P20 thousand loan from both cooperatives for one year.

As of December 31, 2009 and 2008, the consolidated loans amounted to P15.00 million

and P27.71 million respectively, and are presented as part of Loans and Other Receivables.

Consolidated loan is granted to members whose deferred balance is equal to or exceeding

P50 thousand and has outstanding balance equal to or more than P300 thousand from the

Cooperative and Telescoop.

Pangkabuhayan loans pertain to loans whose purpose is to assist members on setting up

their own small-scale businesses with loanable amount of P240 thousand payable up to

three and a half years. On the other hand, Mini-loans pertain to small loan amounts of up

to P24 thousand payable within two years or less. In 2008, the Cooperative introduced

inflationary loans which offer an interest rate at 11% (diminishing balance) inclusive of

service charges with maximum net amount of P15 thousand. Special calamity loan is a

one-time loan and was granted to the members in October 2009 only to aid the victims of

typhoon Ondoy that affected several members of the Cooperative. The Special Calamity

Loan bears an interest of 10% (diminishing balance) and service charge of 2%, payable in 24

months, no deduction for deferred accounts/arrears, and one time only and not renewable.

Receivables from PLDT companies pertain to the members’ contributions and the savings

deposits made by the members that are deducted from their salaries. PLDT companies

serve as withholding agents for these amounts which will then be remitted to the

Cooperative.

Loans to directors, officers, and related interests amounted to P5.8 million and P8 million as

of December 31, 2009 and 2008, respectively, which represent 0.37% and 0.60% of the total

loan portfolio as of December 31, 2009 and 2008, respectively. The said loans are all current

and fully secured with collaterals.

All of the Cooperative’s loans and other receivables have been reviewed for indicators of

impairment. Certain loans and other receivables were found to be impaired and provisions

have been recorded accordingly.

The carrying amounts of these financial assets are reasonable approximation of their fair

values.

6. AVAILABLE-FOR-SALE FINANCIAL ASSETS

The amounts in the statement of assets, liabilities and members’ equity comprise of the

following categories of available-for-sale financial assets:

2009 2008

Metro South Cooperative Bank

(MSCB) P 13,481,189 P 13,543,659

Cash surrender value of life

insurance policies 6,730,485 5,984,377

Philippine Resortel

and Education Service Coop 500,000 500,000

Metro Manila Savings Cooperative 275,546 264,938

Others 39,959 39,959

P 21,027,179 P 20,332,933

The reconciliation of the carrying amounts of available-for-sale financial assets is as follows:

2009 2008

Balance at beginning of year P 20,332,933 P 21,365,235

Fair value gain (loss) – net 694,246 ( 1,032,302)

Balance at end of year P 21,027,179 P 20,332,933

Available-for-sale financial assets, except for cash surrender value of life insurance policies,

are measured at cost as these are not traded in an active market.

The carrying amounts of these financial assets are reasonable approximation of their fair

values.

7. PROPERTY AND EQUIPMENT

The gross carrying amounts and accumulated depreciation and amortization at the

beginning and end of 2009 and 2008 are shown below.

Computers,

Condominium and Office

Unit and Furniture and Transportation

Improvements Fixtures Equipment Total

December 31, 2009

Cost P 7,969,236 P 7,128,067 P 1,451,800 P 16,549,103

Accumulated depreciation

and amortization ( 5,101,409 ) ( 5,644,263 ) ( 894,287 ) ( 11,639,959 )

Net carrying amount P 2,867,827 P 1,483,804 P 557,513 P 4,909,144

December 31, 2008

Cost P 7,969,236 P 6,134,598 P 1,451,800 P 15,555,634

Accumulated depreciation

and amortization ( 4,672,781 ) ( 4,169,550 ) ( 603,927 ) ( 9,446,258 )

Net carrying amount P 3,296,455 P 1,965,048 P 847,873 P 6,109,376

January 1, 2008

Cost P 8,526,485 P 28,716,401 P 2,121,800 P 39,364,686

Accumulated depreciation

and amortization ( 6,408,610 ) ( 23,078,604 ) ( 884,930 ) ( 30,372,144 )

Net carrying amount P 2,117,875 P 5,637,797 P 1,236,870 P 8,992,542

The reconciliation of the carrying amounts at the beginning and end of 2009 and 2008 of

property and equipment is shown below.

Computers,

Condominium and Office

Unit and Furniture and Transportation

Improvements Fixtures Equipment Total

Balance at January 1, 2009,

net of accumulated

depreciation and amortization P 3,296,455 P 1,965,048 P 847,873 P 6,109,376

Additions - 993,469 - 993,469

Depreciation and amortization

charges for the year ( 428,628 ) ( 1,474,713 ) ( 290,360 ) ( 2,193,701 )

Balance at December 31, 2009,

net of accumulated

depreciation and amortization P 2,867,827 P 1,483,804 P 557,513 P 4,909,144

Balance at January 1, 2008,

net of accumulated

depreciation and amortization P 2,117,875 P 5,637,797 P 1,236,870 P 8,992,542

Additions 2,300,000 452,200 - 2,752,200

Disposals ( 708,920 ) ( 417,265 ) - ( 1,126,185 )

Depreciation and amortization

charges for the year ( 412,500 ) ( 3,707,684 ) ( 388,997 ) ( 4,509,181 )

Balance at December 31, 2008,

net of accumulated

depreciation and amortization P 3,296,455 P 1,965,048 P 847,873 P 6,109,376

In 2008, the Cooperative disposed computers, office furniture and fixtures and leasehold

improvements with total costs of P23.0 million and P2.8 million, respectively, accumulated

depreciation and amortization of P22.6 million and P0.21 million, respectively, and

recognized losses of P0.4 million and P0.7 million, respectively. No disposals were made in

2009.

8. INVESTMENT PROPERTY

The Cooperative’s investment property pertains to a land and building co-owned with

PLDT Employees’ Multi-Purpose Cooperative (Telescoop), a related party, for capital

appreciation.

The gross carrying amounts and the accumulated depreciation, amortization and impairment

of investment property at the beginning and end of 2009 and 2008 are as follows:

Buildings and

Land Improvements Total

December 31, 2009

Cost P 8,000,000 P 8,681,406 P 16,681,406

Accumulated depreciation,

amortization and impairment - ( 8,681,405 ) ( 8,681,405 )

Net carrying amount P 8,000,000 P 1 P 8,000,001

December 31, 2008

Cost P 8,000,000 P 8,681,406 P 16,681,406

Accumulated depreciation

amortization and impairment - ( 8,155,382 ) ( 8,155,382 )

Net carrying amount P 8,000,000 P 526,024 P 8,526,024

January 1, 2008

Cost P 8,000,000 P 8,681,406 P 16,681,406

Accumulated depreciation

amortization and impairment - ( 6,663,067 ) ( 6,663,067 )

Net carrying amount P 8,000,000 P 2,018,339 P 10,018,339

The reconciliation of the carrying amounts at the beginning and end of 2009 and 2008 of

investment property are as follows:

Buildings and

Land Improvements Total

Balance at January 1, 2009,

net of accumulated depreciation,

amortization and impairment P 8,000,000 P 526,024 P 8,526,024

Depreciation and amortization

for the year - ( 173,627 ) ( 173,627 )

Impairment - ( 352,396) ( 352,396 )

Balance at December 31, 2009,

net of accumulated depreciation,

amortization and impairment P 8,000,000 P 1 P 8,000,001

Buildings and

Land Improvements Total

Balance at January 1, 2008,

net of accumulated depreciation,

amortization and impairment P 8,000,000 P 2,018,339 P 10,018,339

Depreciation and amortization

for the year - ( 173,628 ) ( 173,628 )

Impairment - ( 1,318,687 ) ( 1,318,687 )

Balance at December 31, 2008,

net of accumulated depreciation

and amortization P 8,000,000 P 526,024 P 8,526,024

The Cooperative recognized impairment loss on building and improvements based on the

appraised value of building and improvements amounting to P0.4 million and P1.3 million

in 2009 and 2008, respectively, which is included as part of Expenses in the statements of

comprehensive income and distribution of net savings.

There are no active markets or recent market transactions for this investment property.

The investment property was used to secure a loan of Telescoop.

9. DEFERRED CHARGES

Deferred charges represents the excess payments made by the Cooperative over the

contributions received on the Cooperative’s Comprehensive Benefits Plan to its retiring

members (see Note 15). The amortization of deferred charges was charged directly to

General Equity Reserves.

10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

This account consists of:

2009 2008

Special PECCI Bonds P 287,738,163 P 358,872,524

Retirement benefit obligation 32,207,676 34,311,610

Payable to resigned members 18,914,834 15,041,562

Accrued expenses 4,016,293 2,513,234

Telescoop 179,822 737,870

Others 1,292,000 1,277,598

P 344,348,788 P 412,754,398

The Cooperative considers the carrying amounts of accounts payable and accrued expenses

recognized in the statements of assets, liabilities and members’ equity to be reasonable

approximation of their fair values.

10.1 Special PECCI Bonds

Special PECCI Bonds are investments of members in the Cooperative and have

one-year term renewable annually until the member has retired and/or ceased its

membership with the Cooperative. The related interest rates for these investments vary

depending on the total amount of investments of the members which range from 7% to 10%

in 2009 and 7% to 12% in 2008. Total interest expense incurred amounted to P31.5 million

in 2009 and P37.7 million in 2008 and presented as part of interest and financing fees in the

statements of comprehensive income and distribution of net savings.

10.2 Retirement Benefit Obligation

The management sets aside a certain percentage, 0.2% in 2009 and 2008, of its net savings for

its retirement benefit obligation, rather than actuarially determining the Cooperative’s

retirement benefit obligation and current retirement expense for its employees. Relevant

standard requires the Cooperative to obtain an actuarial valuation of its employee

retirement benefits, which is required to be computed using the projected unit credit

method under the PFRS. The retirement benefit expense, included in the employee benefits

expense, and retirement obligation, included in Accounts Payable and Accrued Expenses,

amounted to P1.62 million and P32.21 million, respectively, for 2009 and P1.80 million and

P34.31 million, respectively, for 2008.

11. DEPOSIT LIABILITIES

This account is composed of the following:

2009 2008

Savings deposit of members P 548,685,238 P 365,951,294

Education Committee (EDCOM)

savings deposit 284,028 370,163

Special savings deposit 66,292 66,292

PLDT Retirees’ Association, Inc.

(PRAI) savings deposit 21,816 71,337

Free Telephone Workers’ Union

(FTWU) savings deposit 10,874 10,874

Ugnayan (Makati Based) Cooperative 7,720 7,720

P 549,075,968 P 366,477,680

The savings deposit has an annual interest rate of 7% in 2009 and 2008.

12. INTEREST-BEARING LOANS

In 2009, the Cooperative obtained several interest-bearing loans from local commercial bank

for working capital requirements. The loans bear annual interest rate ranging from 7.5% to

8.0% in 2009. Interest expense incurred for the year amounted to P1.2 million and is included

as part of interest and financing fees in the 2009 statement of comprehensive income and

distribution of net savings.

Certain loans and other receivables are used as collaterals for the interest-bearing loans

(see Note 5).

13. UNCLAIMED DIVIDENDS

Unclaimed dividends pertain to interest on share capital payable to the members of the

Cooperative. Interest on share capital represents the balance of net savings after deducting

the required reserves as mandated by the Code.

14. COOPERATIVE EDUCATION AND TRAINING FUND (CETF)

The Cooperative deducts from its net savings an amount equivalent to 8% thereof for

CETF for the educational training and community development programs of the

Cooperative’s employees and members.

The reconciliation of the outstanding balance of CETF is as follows:

2009 2008

Balance at beginning of year P 38,635,149 P 35,242,978

Allocation from CETF – reserve fund 2,982,867 4,050,521

Disbursements ( 129,407) ( 658,350 )

Balance at end of year P 41,488,609 P 38,635,149

15. RESERVE FOR CONTINGENCY FUND - COMPREHENSIVE BENEFIT

PLAN (CBP)

The CBP is a program of the Cooperative that provides retirement or death benefits to

qualified members. Qualified members are required to contribute P100 monthly and

should be a member of the Cooperative for at least seven years at the time of availment of

benefits. In the event of death before retirement, the beneficiary of the qualified members

will receive P200,000. Upon retirement from PLDT companies and membership

withdrawal from the Cooperative, the qualified member shall receive his/her total

contributions and a premium based on a graduated computation. Retiring members with

membership of below seven years shall not receive any benefit from the CBP including

their contributions. Resigning members, who are 49 years old and below shall only be

provided with benefits equivalent to 90% of the retirement benefits. Resigning members,

who are at least 50 years old on the other hand, shall be provided with 100% of the

retirement benefits. The resigning and retiring members shall be entitled to the graduated

amount of benefit after its seventh year of membership in the Cooperative.

The balance of this account pertains to the 10% amount withheld from the resigned

members and the P100 monthly premium contributions to CBP, net of the total amount of

benefits released to the deceased or resigned qualified members. No provisions for

estimated future liability in CBP were recorded in 2009 and 2008. Relevant standard

requires the Cooperative to obtain an actuarial valuation of its employees’ retirement

benefits computed using the projected unit credit method as required by PFRS. The

Cooperative was unable to determine the estimated future liabilities relating to future

claims on the said program.

The Insurance Commission (IC), Securities and Exchange Commission and CDA issued

a joint memorandum circular, numbered 01-2010, on January 29, 2010. The memorandum

requires all entities involved in informal insurance activities to (i) terminate this informal

insurance activities within one year from the effectivity of the memorandum, or (ii) to

organize into an insurance provider and secure certification from the IC within two years

from the effectivity of the memorandum. The memorandum also states that during the one

year transition, the Cooperative, for the smooth transition and to continually provide

insurance coverage of their members may (a) partner with commercial insurance providers

or (b) let their members become members of an authorized cooperative insurance providers.

As of the date of this report, the Cooperative is currently in the process of evaluating these

options.

16. ALLOWANCES AND PER DIEM

The breakdown of this account is presented below:

2009 2008

BOD P 2,965,800 P 2,898,000

Committees 2,430,200 2,498,000

P 5,396,000 P 5,396,000

17. OFFICERS’ BENEFITS

This account has been paid to the following:

2009 2008

BOD P 3,597,000 P 2,825,000

Committees 3,114,000 1,845,600

P 6,711,000 P 4,670,600

18. MEMBERS’ EQUITY

18.1 Reserves

The details of this account as of December 31, 2009 and 2008 follow:

2009 2008

General equity reserve fund P 74,033,505 P 67,605,758

Social and community development fund 4,369,258 3,723,055

Educational and publicity reserve fund 2,802,547 2,079,824

P 81,205,310 P 73,408,637

18.2 Distribution of Net Savings

The Cooperative’s Articles of Cooperation and By-Laws explicitly provide that its net

savings at the end of the year shall be distributed in the following manner:

a. At least 10% shall be set aside as General Equity Reserve Fund. This General Equity

Reserve fund is created to provide for the stability of the Cooperative and to absorb

losses, if any, in its business operations.

b. Eight percent shall be set aside for Cooperative Educational and Training Reserve

Fund.

c. One-half of this amount shall be used by the Cooperative for education and training

activities; while the other half shall be for the cooperative education and training fund

of the apex organization of which the Cooperative is a member.

d. In 2006, the Cooperative decreased its allocation from its net savings for the CETF

from 10% to 8% as approved by the BOD.

e. At least 1% shall be set aside for Social and Community Development Fund. The

Cooperative set aside 1% of gross revenue for this fund.

f. In 2009 and 2008, the Cooperative computed the Social and Community Development

Fund at 1% of gross revenues amounting to P2,132,203 and P2,404,925, respectively.

g. The remaining net savings shall be allocated for the interest on share capital and

patronage refund computed in accordance with Chapter 10 of the Code.

19. OTHER COMMITMENTS AND CONTINGENCIES

There are commitments, litigations, and contingent liabilities that arise in the normal

course of the Cooperative’s operations that are not reflected in the accompanying financial

statements. Management is of the opinion that as of December 31, 2009, losses, if any, from

these commitments and contingencies will not have a material effect on the Cooperative’s

financial statements.

20. RISK MANAGEMENT OBJECTIVES AND POLICIES

The Cooperative is exposed to a variety of financial risks which result from both its

operating and investing activities. The Cooperative’s risk management is coordinated with

the BOD, and focuses on actively securing the Cooperative’s short to medium-term cash

flows by minimizing the exposure to financial markets. Long-term financial investments are

managed to generate lasting returns.

The Cooperative does not actively engage in the trading of financial assets for speculative

purposes nor does it write options. The most significant financial risks to which the

Cooperative is exposed to are described below.

20.1 Foreign Currency Sensitivity

The Cooperative has no significant exposure to foreign currency risk as financial assets and

liabilities are denominated in its functional currency.

20.2 Interest Rate Sensitivity

The Cooperative’s policy is to minimize interest rate cash flow risk exposures on interest-

bearing liabilities. At December 31, 2009 and 2008, the Cooperative has no significant

exposure to changes in market interest rates of its cash. All other financial assets and

liabilities have fixed rates.

20.3 Credit Risk

Generally, the maximum credit risk exposure of financial assets is the carrying amount of

the financial assets as shown on the face of the statement of assets, liabilities and members’

equity (or in the detailed analysis provided in the notes to the financial statements), as

summarized below:

Notes 2009 2008

Cash 4 P 36,240,432 P 134,987,490

Loans and other receivables 5 1,585,386,461 1,330,809,561

P1,621,626,893 P1,465,797,051

The Cooperative continuously monitors defaults of the members/borrowers and other

counterparties, identified either individually or by group, and incorporate this information

into its credit risk controls. The Cooperative’s policy is to deal only with creditworthy

counterparties.

The table below shows the credit quality by class of financial assets as of December 31, 2009.

Current Past Due Total

Cash P 36,472,249 P - P 36,472,249

Loans and other receivables – net 1,426,914,727 148,877,763 1,575,792,490

P 1,463,386,976 P 148,877,763 P 1,612,264,739

This compares with the credit quality by class of financial assets as of December 31, 2008.

Current Past Due Total

Cash P 136,974,818 P - P 136,974,818

Loans and other receivables – net 1,243,075,316 83,969,935 1,327,045,251

P 1,380,050,134 P 83,969,935 P 1,464,020,069

None of the financial assets are secured by collateral or other credit enhancements.

Financial assets that are past due but not impaired are as follow:

2009 2008

One year and below P 124,509,679 P 48,436,675

Over one year to three years 12,611,677 28,523,190

Over three years to five years 11,756,407 7,010,070

P 148,877,763 P 83,969,935

In respect of loans and other receivables, the Cooperative is not exposed to any significant

credit risk exposure to any single counterparty or any group of counterparties having

similar characteristics.

20.4 Liquidity Risk

The Cooperative manages its liquidity needs by carefully monitoring scheduled debt

servicing payments for long-term financial liabilities as well as cash outflows due in a

day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day

and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term

liquidity needs for a 6-month and one-year period are identified monthly.

The Cooperative maintains cash to meet its liquidity requirements for up to 60-day periods.

Excess cash are invested in time deposits, mutual funds or short-term marketable securities.

Funding for long-term liquidity needs is additionally secured by an adequate amount of

members’ contribution.

All of the Cooperative’s financial liabilities have current contractual maturities comprising

of:

2009 2008

Accounts payable and accrued expenses P 312,141,112 P 378,442,788

Deposit liabilities 549,075,968 366,477,680

Interest-bearing loans 15,000,000 -

Unclaimed dividends 26,539,448 94,678,711

P 902,756,528 P 839,599,179

21. CATEGORIES AND FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

21.1 Comparison of Carrying Amounts and Fair Values

The carrying amount and fair values of the categories of assets and liabilities presented in the

statements of financial position are shown below.

Notes 2009 2008

Carrying Values Fair Values Carrying Values Fair Values

Financial assets

Cash 4 P 36,472,249 P 36,472,249 P 136,974,818 P 136,974,818

Loans and other receivables - net 5 1,575,792,490 1,575,792,490 1,327,045,251 1,327,045,251

P 1,612,264,739 P 1,612,264,739 P 1,464,020,069 P 1,464,020,069

Available-for-sale financial assets:

Equity securities 6 P 21,027,179 P 21,027,179 P 20,332,933 P 20,332,933

Financial Liabilities

Interest-bearing loans 12 P 15,000,000 P 15,000,000 P - P -

Accounts payable and

accrued expenses 10 312,141,112 312,141,112 378,442,788 378,442,788

Deposit liabilities 11 549,075,968 549,075,968 366,477,680 366,477,680

Unclaimed dividends 26,539,448 26,539,448 94,678,711 94,678,711

P 902,756,528 P902,756,528 P 839,599,179 P 839,599,179

21.2 Fair Value Hierarchy

The table below presents the hierarchy of fair value measurements used by the Cooperative.

Level 1 Level 2 Level 3 Total

December 31, 2009

Available-for-sale financial

assets P 6,730,485 P - P 14,296,694 P 21,027,179

December 31, 2008

Available-for-sale financial

assets P 5,984,377 P - P 14,348,556 P 20,332,933

The different levels have been defined as follows:

a. Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

b. Level 2: inputs other than quoted prices included within Level 1 that are observable for

the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices);

and

c. Level 3: inputs for the asset or liability that are not based on observable market data

(unobservable inputs).

22. CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES

The Cooperative’s capital management objectives are:

To ensure the Cooperative’s ability to continue as a going concern; and,

To provide an adequate return to members by pricing products and services

commensurately with the level of risk.

The Cooperative monitors capital on the basis of the carrying amount of equity as presented

on the face of the statement of assets, liabilities and members’ equity.

The Cooperative sets the amount of capital in proportion to its overall financing structure,

i.e., equity and financial liabilities. The Cooperative manages the capital structure and

makes adjustments to it in the light of changes in economic conditions and the risk

characteristics of the underlying assets. In order to maintain or adjust the capital structure,

the Cooperative may adjust the amount of dividends paid to members or sell assets to

reduce debt.

2009 2008

Total liabilities P1,052,874,442 P 964,718,192

Members’ equity 594,151,158 536,643,300

Debt-to-equity ratio 1: 0.564 1: 0.556

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